Drug store retailer Rite Aid Corporation (RAD) declared that it has made amendments to its current senior secured credit facility, including the expansion of its borrowing capacity and extension of the current maturity.
The altered credit facility has raised the company’s borrowing capacity to up to $3 billion or $3.7 billion, if the retailer fully repays its Senior Secured Notes, bearing an interest rate of 8.00% and due 2020.
We note that the expansion of borrowing capacity has provided the company with greater flexibility to pay its secured term loan. This is evident as Rite Aid utilized the loans from its new facility to fully settle and retire its Tranche 7 Senior Secured Term Loan, due 2020, with an outstanding balance of $1.147 billion. Apart from this, the company used these borrowings to pay other related fees.
Also, Rite Aid announced that it has extended its current maturity to Jan 2020. As a result of this extension, the company anticipates to generate annual interest cost savings of nearly $20 million or $50 million, depending on the borrowing capacity expansion to $3 billion or $3.7 billion, respectively.
Borrowing costs are still considerably low in the U.S., enabling companies to obtain easy financing. Corporate bonds and borrowings from banks are in high demand as the U.S. treasuries are yielding low rates. We believe that this strategic move by the company will provide it with the financial flexibility to drive long-term growth.
On taking a closer look at the company’s financial structure, we noted that at the end of the third quarter of fiscal 2015, Rite Aid had cash and cash equivalents of $233 million and long-term debt (excluding current maturities) of $5,673.6 million. Further, it had $780 million worth of outstanding debt under its $1.8 billion senior secured credit facility and $71 million worth of outstanding letters of credit.
Moreover, during the first three quarters of fiscal 2015, the company, which competes with Herbalife Ltd. (HLF), generated cash flow of $11.7 million from operating activities and incurred capital expenditure of nearly $131.3 million.
Rite Aid’s third quarter earnings of 10 cents per share rose over two-fold from the prior-year quarter and were double the Zacks Consensus Estimate. Additionally, revenues advanced 5.3% year over year to $6,692.3 million and surpassed the Zacks Consensus Estimate of $6,643 million. Top-line growth was mainly driven by a 5.4% increase in same store sales.
Being nation’s third-largest drugstore chain in terms of store count, following Walgreens Boots Alliance, Inc. (WBA) and CVS Health Corporation (CVS), Rite Aid currently sports a Zacks Rank #1 (Strong Buy).
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